Buffett prefers takeovers to picking stocks for value

Tuesday

May 6, 2014 at 12:01 AMMay 6, 2014 at 4:55 AM

NEW YORK - Warren Buffett pressed the case at Berkshire Hathaway's annual meeting for why takeovers make more sense for the company than the stock picks that propelled growth for decades. The billionaire told thousands of shareholders in Omaha, Neb., on Saturday that he and business partner Charles Munger are focused on acquiring large companies to create more-enduring value.

NEW YORK — Warren Buffett pressed the case at Berkshire Hathaway’s annual meeting for why takeovers make more sense for the company than the stock picks that propelled growth for decades.

The billionaire told thousands of shareholders in Omaha, Neb., on Saturday that he and business partner Charles Munger are focused on acquiring large companies to create more-enduring value.

“What really we want to do at our present size and scope, and with the objectives we’ve got for our shareholders, is we want to buy big businesses with good managements at reasonable prices and then try to build them over time,” said Buffett, Berkshire’s chairman and CEO. “It’s a different sort of build-up of value” from investing in stocks, he added. “We’ve moved into phase two.”

Buffett, 83, transformed Berkshire during the past half-century from a textile maker into the world’s fifth-largest company by market value. In his first decades as CEO, he focused on using premiums from insurance units to buy stocks. That strategy evolved, and now the company derives most of its earnings from operating businesses in industries from energy and manufacturing to transportation and retail.

“He became famous as a stock picker, and that reputation still dominates in the public image,” said Lawrence Cunningham, a professor at George Washington University and author of the forthcoming book Berkshire Beyond Buffett. He was “very good at doing that, but that has not been the definition or content of Berkshire” in recent years.

Less than 20 percent of Berkshire’s earnings came from investment income at insurance businesses in 2013. That compares with about half in 1988, according to the company’s annual reports.

First-quarter net income slipped 3.8 percent, to $4.71 billion from a year earlier on worse underwriting results at insurance subsidiaries, the company said on Friday. Profit climbed 15 percent at Berkshire Hathaway Energy.

Shareholders have sought to glean for years what the company will be like after Buffett is no longer in charge, and many questions at the meeting centered on that topic. Buffett has never publicly identified his successor, though he has said that the board is in agreement on an individual and that his roles will be split.

Buffett has said his son, Howard, will become non-executive chairman to help guard the culture. Investments will be overseen by Todd Combs and Ted Weschler, money managers whom the elder Buffett hired in 2010 and 2011. Each now oversees about $7 billion.

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